2014 (5) TMI 1200 - HC - Indian Laws

Compensation for acquired land not subject to TDS, clarifies Court. Interest under Section 28 taxable, not under Section 34.

The Court held that compensation for agricultural land acquired under the Land Acquisition Act should not be subject to Tax Deduction at Source (TDS). The ... Deduction of TDS - disbursal of compensation for land acquired - agricultural land - whether the Government was justified in deducting tax at source while disbursing compensation for land acquired under the Land Acquisition Act, 1894? HELD THAT:- This issue is not res integra and has been settled by this Court and more recently the issue has been examined in JAGMAL SINGH, SATBIR SINGH VERSUS STATE OF HARYANA AND ANOTHER [2013 (7) TMI 774 - PUNJAB & HARYANA HIGH COURT] where it was held that While any deduction made under TDS will not cause any serious prejudice even if the amount ought not to have been deducted by enabling a party applying for refund, if, it might involve a large number of cases, it shall be quite unnecessary for land owners to be directed to apply for income tax for refund in every case. Such a requirement is a needless circuitous exercise. The matter is squarely covered by the aforesaid pronouncement. There would be no need to hear the State on the matter which has been already decided by this Court. Compensation for acquired land would not suffer Tax Deduction at Source (TDS) - petition allowed. Issues Involved:Whether the Government was justified in deducting tax at source while disbursing compensation for agricultural land acquired under the Land Acquisition Act, 1894.Analysis:The key issue in this case was whether the Government was correct in deducting tax at source while disbursing compensation for agricultural land acquired under the Land Acquisition Act, 1894. The Court referred to a previous judgment by brother K.Kannan, J. in a related case where it was observed that interest paid on compensation for land acquisition falls under Section 28 of the Act and is not exempt from tax deduction at source. The Court also considered the interpretation of 'consideration for enhanced compensation' in Section 194 LA in the context of interest under Section 28, as discussed in previous judgments.The Court further analyzed the distinction between interest under Section 28 and Section 34 of the Land Acquisition Act. It was emphasized that interest under Section 28 is considered an accretion to the value of the land acquired and is part of the compensation itself. Therefore, any component of compensation going towards the discharge of liability under Section 28 must be considered part of the compensation to which tax deduction at source shall apply. However, interest under Section 34 does not fall under this category.The Court concluded that compensation assessed and interest calculated for acquiring agricultural land, where the amount deposited represented the liability under Section 28, should not be subject to tax deduction at source. The judgment clarified that any liability going towards interest calculated under Section 34 would not be exempt from tax deduction. The Court highlighted the unnecessary burden on landowners to apply for income tax refunds in cases where tax deduction was not required.In the final decision, the Court allowed the petition, setting aside the impugned order deducting tax at source before disbursement of compensation for acquired land. The judgment established that compensation for agricultural land acquired under the Land Acquisition Act should not suffer Tax Deduction at Source (TDS) and that the matter was already conclusively decided by the Court.